instoptembnd

Construct bond with embedded option

Syntax

InstSet = instoptembnd (CouponRate, Settle, Maturity,
OptSpec, Strike, ExerciseDates, 'AmericanOpt',
AmericanOpt, 'Period', Period, 'Basis', Basis,
'EndMonthRule', EndMonthRule,'Face', Face, 'IssueDate',
IssueDate, 'FirstCouponDate', FirstCouponDate,
'LastCouponDate', LastCouponDate,'StartDate',StartDate)
InstSet = instoptembnd(InstSetOld, CouponRate,...)
[FieldList, ClassList, TypeString] = instoptembnd

Arguments

CouponRate

Decimal annual rate indicating the annual percentage rate used to determine the coupons payable on a bond. CouponRate is a NINST-by-1 vector or NINST-by-1 cell array of decimal annual rates, or decimal annual rate schedules. For the latter case of a variable coupon schedule, each element of the cell array is a NumDates-by-2 cell array, where the first column is dates and the second column is its associated rate. The date indicates the last day that the coupon rate is valid.

Settle

NINST-by-1 vector of settlement dates.

Maturity

NINST-by-1 vector of maturity dates.

OptSpec

NINST-by-1 vector of string values 'Call' or 'Put'.

For a European or Bermuda option

Strike

NINST-by-NSTRIKES matrix of strike price values. Each row is the schedule for one option. If an option has fewer than NSTRIKES exercise opportunities, the end of the row is padded with NaN's.

ExerciseDates

NINST-by-NSTRIKES matrix of exercise dates. Each row is the schedule for one option. For a European option, there is only one ExerciseDate on the option expiry date.

AmericanOpt

(Optional) NINST-by-1 vector of flags. AmericanOpt is 0 for each European or Bermuda option. The default is 0 if AmericanOpt is NaN or not entered.

For an American option

Strike

NINST-by-1 vector of strike price values for each option.

ExerciseDates

NINST-by-2 vector of exercise date boundaries. For each instrument, the option can be exercised on any coupon date between or including the pair of dates on that row. If only one non-NaN date is listed, or if ExerciseDates is NINST-by-1, the option can be exercised between the underlying bond Settle and the single listed ExerciseDate.

AmericanOpt

NINST-by-1 vector of flags. AmericanOpt is 1 for each American option. The AmericanOpt argument is required to invoke American exercise rules.

Period

(Optional) NINST-by-1 matrix for coupons per year. The default value is 2.

Basis

(Optional) Day-count basis of the instrument. Basis is a vector of integers with the following possible values:

  • 0 = actual/actual (default)

  • 1 = 30/360 (SIA)

  • 2 = actual/360

  • 3 = actual/365

  • 4 = 30/360 (BMA)

  • 5 = 30/360 (ISDA)

  • 6 = 30/360 (European)

  • 7 = actual/365 (Japanese)

  • 8 = actual/actual (ICMA)

  • 9 = actual/360 (ICMA)

  • 10 = actual/365 (ICMA)

  • 11 = 30/360E (ICMA)

  • 12 = actual/actual (ISDA)

  • 13 = BUS/252

For more information, see basis.

EndMonthRule

(Optional) NINST-by-1 matrix for the end-of-month rule. This rule applies only when Maturity is an end-of-month date for a month having 30 or fewer days. When the value is 0, the end-of-month rule is ignored, meaning that a bond's coupon payment date is always the same numerical day of the month. When the value is 1, the end-of-month rule is set rule on (default), meaning that a bond's coupon payment date is always the last actual day of the month.

IssueDate

(Optional) NINST-by-1 matrix for the bond issue date.

FirstCouponDate

(Optional) Date when a bond makes its first coupon payment; used when bond has an irregular first coupon period. When FirstCouponDate and LastCouponDate are both specified, FirstCouponDate takes precedence in determining the coupon payment structure. If you do not specify a FirstCouponDate, the cash flow payment dates are determined from other inputs.

LastCouponDate

(Optional) Last coupon date of a bond before the maturity date; used when bond has an irregular last coupon period. In the absence of a specified FirstCouponDate, a specified LastCouponDate determines the coupon structure of the bond. The coupon structure of a bond is truncated at the LastCouponDate, regardless of where it falls, and is followed only by the bond's maturity cash flow date. If you do not specify a LastCouponDate, the cash flow payment dates are determined from other inputs.

StartDate

(Optional) NINST-by-1 matrix for date when a bond actually starts (i.e. the date from which a bond's cash flows can be considered). To make an instrument forward starting, specify this date as a future date. If StartDate is not explicitly specified, the effective start date is the Settle date.

Face

(Optional) Face value. Face is a NINST-by-1 vector or NINST-by-1 cell array of face values, or face value schedules. For the latter case, each element of the cell array is a NumDates-by-2 cell array, where the first column is dates and the second column is its associated face value. The date indicates the last day that the face value is valid. Default is 100.

    Note:   Data arguments are NINST-by-1 vectors, scalar, or empty. Fill unspecified entries in vectors with NaN. Only one data argument is required to create the instrument. The others may be omitted or passed as empty matrices [].

Description

InstSet = instoptembnd (CouponRate, Settle, Maturity,
OptSpec, Strike, ExerciseDates, 'AmericanOpt',
AmericanOpt, 'Period', Period, 'Basis', Basis,
'EndMonthRule', EndMonthRule,'Face', Face, 'IssueDate',
IssueDate, 'FirstCouponDate', FirstCouponDate,
'LastCouponDate', LastCouponDate,'StartDate',StartDate)
creates InstSet, a variable containing a collection of instruments.

    Note:   instopembnd uses optional parameter name/value pairs such that, 'Name1', Value1, 'Name2', Value2, and so on, are a variable length list of name/value pairs.

Instruments are broken down by type and each type can have different data fields. Each stored data field has a row vector or string for each instrument. See instget for more information on the InstSet variable.

InstSet = instoptembnd(InstSetOld, CouponRate,...) adds 'OptEmBond' instruments to an instrument variable.

[FieldList, ClassList, TypeString] = instoptembnd lists field metadata for the 'OptEmBond' instrument.

FieldList is a number of fields (NFIELDS)-by-1 cell array of strings listing the name of each data field for this instrument type.

ClassList is an NFIELDS-by-1 cell array of strings listing the data class of each field. The class determines how arguments are parsed. Valid strings are 'dble', 'date', and 'char'.

TypeString is a string specifying the type of instrument added. For a bond option instrument, TypeString = 'OptEmBond'.

Examples

expand all

Construct a Bond With an Embedded Option

This example shows how to construct a bond with an embedded option using the following data.

Settle = 'jan-1-2007';
Maturity   = 'jan-1-2010';
CouponRate = 0.07;
OptSpec = 'call';
Strike= 100;
ExerciseDates= {'jan-1-2008' '01-Jan-2010'};
AmericanOpt=1;
Period = 1;

InstSet = instoptembnd(CouponRate, ...
Settle, Maturity, OptSpec, Strike,  ExerciseDates,'AmericanOpt', AmericanOpt, ...
'Period', Period);

% display the instrument
 instdisp(InstSet)
Index Type      CouponRate Settle         Maturity       OptSpec Strike ExerciseDates                Period Basis EndMonthRule IssueDate FirstCouponDate LastCouponDate StartDate Face AmericanOpt
1     OptEmBond 0.07       01-Jan-2007    01-Jan-2010    call    100    01-Jan-2008   01-Jan-2010    1      0     1            NaN       NaN             NaN            NaN       100  1          
 
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